Improving the design and execution of strategy: Creating future organisational value
Likely symptoms of problems
Management by financial measures. By the time the financial systems provide the results, its too late. Profits warnings are looming. The organisational change has been tried but the effects have not materialised.
You are driving change through the organisation but are relying on the project’s completion to deliver the results. A gap exists: What is missing is the effect of the project on the organisation.
Some try to solve this balance by grouping their measures into groups. If they are not financial and there are groups of measures then it must be a “Balanced Scorecard”. In doing so they are missing a fundamental principle of the Balanced Scorecard.
Too little attention paid to the dimensions of the business that lead to financial performance. Too much attention is paid to the results.
In fact the organisation is changing, either deliberately, or because of outside influences. In a steady state situation the financial indicators are useful because they provide a run rate.
However when change is occurring, it is the underlying aspects of the business that are changing first. Externally, the environment and the competitors may be acting differently. Internally the change in direction is most certainly underpinned by a change in the capability of the organisation, that is in what it knows, its skills, its values, its systems, its culture and values. These take a while to filter through to how the organisation delivers. In turn, this takes a while to affect the customer.
The financial consequences (be they changes to the cost base or a change to the revenue) take much longer to come through. Merely watching the financial results will not tell you whether the change is being effective and the results will come through.
A major retailer’s strategy included a theme that created future sources of growth. This theme planned to add some 30% to the value of the business over the next 3-4 years.
Everything looked Rosy. There were a stream of projects and trials coming through. The first signs were very positive. The project pipeline was full with forthcoming options and developments being evaluated for value and attractiveness. Things looked positive.
However we had identified the critical, underlying, drivers of performance. These included the extent of investment in the trials and the collaboration and sharing of experience to create and develop the ideas through to products. it was clear that these were not being supported as well as they should. Critical was the investment issue. To drive the value there was a ned for more investment, but this had been held back in a board meeting some 6 months previously.
We coached the head of future sources of growth to present the whole story to the executive team using the cause and effect model of that theme of the balanced scorecard. The effect was electric. As the realisation dawned that they were actively supporting the work and relying on it, yet actions that had been side effects some 6 months ago, were going to undermine its eventual success.
Had they relied on the financial results, or their existing management processes, they would not have noticed the problem until it was too late. Using the Balanced Scorecard framework brought the issue right to the front of their attention, meaning they could apply corrective action and make sure that the stream of projects would come through successfully.
The balanced scorecard relies on a deep understanding of the cause and effect model that drives performance and change in an organisation. If this is not understood then you merely have more measures that just happen to be in groups. There is no relationship between them and they are unlikely to tell you whether you are changing or not.
These groups often represent aspects of the business. These are really themes of the strategy. The cause and effect performance model should apply equally to all such themes.
When working with clients we rarely change the core structure of perspectives of the Balanced Scorecard. The main exception is for not-for-profit and public sector organisations, where the response of customers does not include paying for the company’s products.